Buying a home is a huge financial responsibility and, understandably, some families experience a degree of shock as they adjust to homeownership. In order to prepare for homeownership, you may want to consider reevaluating your budget (or making one, if you don’t already have one) to accommodate this life change. Below we’ve collected five tips to help you make and stick to a budget successfully.
1. Calculate your monthly income after taxes.
The first step in creating your budget is to figure out how much money your household brings in monthly. If looking at your check or pay stub, use the figure that shows how much money is being paid to you by your employer after taxes are taken out. It is very important that you do not plan your budget based off the gross income, since the gross amount contains monies that will go towards taxes, insurance, etc.. If you work a job where your income can fluctuate, such as sales or other commission-based employment, design your budget based off the lowest monthly figure from the past three months rather than a month where your income may be higher. It is better to plan with less and have extra than to plan for more and accidentally go over-budget.
2. Calculate your monthly expenses.
Once you know your monthly income, figure out your monthly expenses. The breakdown of your monthly expenses should include housing, monthly debt payments (such as car payments, student loans, or credit cards), groceries, entertainment, and money to go towards savings, among other items. Depending on your mortgage payment and whether you will have to pay for mortgage insurance, the amount you need to allocate for housing may be less or more than you’re accustomed to.
3. Set a savings goal.
If you haven’t already done so, it’s important to start moving some of your funds into a savings account as soon as possible. While the opinions of financial experts differ as to how much you should have in savings, most agree that the figure to aim for in a savings account is equal to three to six months’ worth of your expenses. Some experts recommend as much as eight months’ worth of savings. Since three to six months’ worth of expenses is several thousand dollars, that task may seem daunting or impossible. If this is the case for you, it may be more palatable to focus on putting a certain dollar amount away every month rather than aiming for one large figure overall. If you save steadily, you’ll be surprised at how quickly your savings will add up. Remember that it’s better to put at least a little money in savings instead of none at all.
4. Revisit your budget every three months.
In order to know if your budget is working out for you, you should check in on your expenses and savings every few months. By taking a look at your budget and comparing data from the past several months, you’ll be able to track your spending patterns and find possible opportunities for saving. Thanks to apps like Mint and Albert and websites like nerdwallet.com, it’s easier than ever to create, track, and stick to the budget you make.
5. Be realistic with your goals and have patience.
Sticking with a budget is hard but worthwhile work that will benefit you greatly in the long run. However, there is always an adjustment period. If you find yourself straying outside of your budget, don’t be critical of yourself; instead, resolve to get back on track as soon as you can. With planning and practice, you’ll adjust to your new budget in no time!
For more information about home mortgages and finding the right loan for your budget, contact us at Southern Trust Mortgage today.